Our hearts are with the Carolinas, and with the cleanup process that is just beginning over there. With all of the the flooding that is hampering efforts to get in and even evaluate the damage, we know this will be a long road to recovery.
The slow onset of these hurricanes is a mixed bag, isn’t it? We prepare for doom, but doom doesn’t strike at every point … and then there is the inevitable frustration with media and public officials who didn’t get it exactly right or aren’t doing enough or should be handling things differently.
It’s very understandable, but I think we could all benefit from extending grace to everyone involved. Hurricanes are hard to deal with, full stop. So let’s all do what we can to help, and avoid pointing fingers.
And last week I wrote about preparing to deal with potential disasters in your future, on the financial front. I realized after the fact that I didn’t spend enough time on the earlier portion of the note, which went into the steps I recommend for climbing out of a hole — “cleaning up from a financial disaster”, if you will.
So this week I thought I’d dig a little deeper into how I’d suggest you go about doing that.
Six Steps To Debt Recovery By Michael Essick
“It’s not whether you get knocked down. It’s whether you get up.” – Vince Lombardi
As I sat down to write this article, it made me think about some San Antonio, Boerne, Texas hill country clients that I’ve walked with over the years who fought their way — successfully — out of debt that would have crushed other families.
How did they do that? Today I’ll tell you.
Here’s something they did NOT do: Borrow money to pay off more borrowed money (and call it savings).
That only works for Uncle Sam, apparently.
In general, with these issues, I’m a big fan of automation — but not in all instances.
[For example, do NOT “automate” your tax preparation process with off-the-shelf software. Especially of the “free” variety. We have to clean up so many mistakes made by these products (and their users!), that I cannot, in good conscience, recommend them.
Yes, I’m obviously biased. But the facts are the facts. Take a gander at this, for just one small example: http://www.customerservicescoreboard.com/TurboTax]
Anyway, moving on from that.
To answer some of the questions we occasionally get from San Antonio, Boerne, Texas hill country clients facing tough times, I’ve put together a step-by-step debt recovery process which we often help people work through.
1. First, pay more than the minimums
If you only pay the minimum payment each month, your bill could continue to INCREASE, even if you completely stop using your card. This is called “negative amortization”–where you think you are paying on your debt but the additional fees and finance charges are more than the minimum payment. The bottom line is: Pay more than your minimum or you will eventually be in debt over your head.
2. Create an automated system
With online banking and automatic payment options, there are GREAT tools for ensuring you don’t mess up because of administrative chaos. If you feel you can’t manage all your bills by pen and paper, there are several good software programs available for keeping track of your financial records.
In fact, I recommend that you automate a payment ABOVE the minimum monthly payment, just to be certain that you start getting ahead of the game. Those minimum payments are rigged against you, and the only way to get ahead is to … get ahead. I have some more thoughts on automation in a moment.
3. Yes, you can negotiate
No, you do not need to be an attorney or other professional to negotiate with your credit card company (negotiating with the IRS, on the other hand, is a very different story!). The rising amount of consumer debt in this country has made creditors realize that they need to be more understanding of their customers — if they hope to get any money back. If you file bankruptcy they are only going to get pennies on the dollar, so they are often willing to make deals.
4. Proactively contact your creditors — in writing
Open communication always helps. Usually credit card companies get ignored and end up sending delinquent files to a collections agency. So they’ll actually appreciate your openness in contacting them, and may be more understanding of your situation. Proactively dealing with your debt problem, rather than hiding, will not only help your financial problem, but will make you feel better about yourself as well.
5. Develop a simple tracking system
If you are not able to pay the full amount of your credit each month, you should still pay something to stay on top of it. You should work off of a written budget so you know exactly where you stand. Some experts suggest that you divide your monthly debt budget by the percentage each bill makes of the total and pay that amount.
Here’s an example: If you owe a total of $1,000, and one credit card is $800 and the other is $200, and you only have $100 available to pay for that month… You should pay $80 on the $800 balance, and $20 on the $200 balance. This way you are reducing each debt by the same percentage.
6. Do NOT be intimidated
No matter how forthcoming and honest you are, some creditors have been taught to be mean and downright nasty. Hang in there, and don’t let this tactic intimidate you.
Give us a call today, for help.
Until next week,
Michael A. Essick, CPA